Question

Suppose you inherit $10,000 and decide to use the money to start a lawn-care business. You purchase a truck and a mower for $10,000 and start mowing lawns. Your annual cost for fuel and other supplies is $2,000. Now, instead of investing your money in the lawn-care business you could have invested the $10,000 in a bank account earning 8 percent annual interest. Additionally, you could have earned $30,000 in another job if you didn’t start your own business. So what is your total annual cost (including opportunity cost) of operating your own lawn-care business? Explain.

My answer was that the total cost would be $32,800 I got this value by calculating the interest from bank+income from job+ $2000 from expenses. I did not list the inherited ten thousand because it really was not a cost.

Is this right please help!

Answer 1

I agree.